OECD warns UK economy faces double-dip recession in 2012

Britain is at risk of slipping into a double-dip recession, the Treasury has been warned.

In its influential twice-yearly forecast the Organisation for Economic Co-operation and Development (OECD) said the UK's GDP will shrink in the final quarter of 2010 and the first quarter of 2011 - the first time it has predicted another recession for the UK.

It believes the UK's faltering economy will grow by just 0.5 per cent over the course of next year, down from its previous estimate of 1.8 per cent.

However, the slump will be modest compared with previous recessions, and the economy is set to start recovering after two quarters of decline - it expects GDP growth of 1.8 per cent in 2013.

Prediction: The OECD thinks the crisis in eurozone will tip UK into recession

Against this came a more optimistic
forecast from the British Chambers of Commerce (BCC), which expects the
UK to sidestep the dreaded double dip altogether, with 2012 GDP growth
coming in at 0.8 per cent.

But the OECD believes weak demand for
exports - from the eurozone in particular - plus the Government's
austerity measures, and the squeeze in consumer spending, will form a an
inescapable economic storm.

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Unemployment, which currently stands
at 8.3 per cent - its highest since 1996 - will rise to 9 per cent in
2013, it predicts, as jobs figures take a worse hit than in the first
recession following the banking crisis.

More economy-boosting quantitative
easing measures from the Bank of England are 'warranted' - it expects
another £125billion injection next year.

Both views come ahead of Chancellor
George Osborne's Autumn Statement tomorrow in which he is set to
announce a series of measures including credit easing to boost
prospects.

But the OECD also warned the downturn
could turn out to be deeper than projected, as the eurozone debt crisis
has the potential to hit the banking sector and weaken confidence. It
said that it may become necessary to pump more money into banks to help
shore up the financial system. While it would be 'preferable' for banks
to raise the money from private investors, it warned that the Government
needs to be prepared to step in.

The Chancellor may also have to
consider easing his programme of spending cuts but it warned that he
will still have to increase austerity measures later on to ensure
medium-term targets are met. It suggested the Government could further
increase the retirement age to improve long-term prospects.

How the world economy has performed, and what the OECD expects next. The figures are based on the year-on-year economic growth for each quarter

And employment is likely to take a
bigger hit this time around because businesses have less scope to reduce
wages and adjust the amount of time employees' work.

The OECD called on the Government to
pump more resources into employment training to help mitigate the impact
of rising unemployment, particularly for young people who are already
suffering a 20 per cent rate of joblessness.

With the eurozone already appearing to
be in 'mild' recession, the OECD said the European debt crisis remains
'the key risk' to the world economy. It added that urgent action was
needed to stop the crisis from escalating, including a 'substantial'
increase in the eurozone bailout fund.

The OECD also called for the European Central Bank to play a greater role in shoring up the finances of debt-ridden nations.

It said: 'If not addressed, recent
contagion to countries thought to have relatively solid public finances
could massively escalate economic disruption.'

Emerging nations are growing more
slowly than previously and there was also a danger the US could slip
back into recession amid its austerity measures, according to its
forecast.